WTE Project Finance Presentation

7/24/2019 WTE Project Finance Presentation

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Financial Modelling for

WTE-PPP project

Veronica

August Sulistyono


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Introduction

PublicPrivatePartnershipmeans:

formsofcooperationbetweenpublicauthoritiesandtheworldof

businesswhichaimtoensurethefunding,construction,renovation,

managementormaintenanceofinfrastructureortheprovisionofa

service

(Commission

of

the

European

Communities

green

paper)

ProjectFinancemeans:

financing

of

a

specific

asset

in

which

lenders

look

principally

to

the

revenues

generated

by

the

operation

of

that

asset

for

the

source

of

funds

from

which

loans

will

be

repaid


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Regulatory Basis PPP-WTE in Indonesia

PPP

PR67/2005(asamended)

Sectoral

LawNo.

18/2008

(waste

management

sectoral law)

GovernmentSupportandGovernmentGuarantee

PR78/2010

MOF

Regulation

260/2010

(Guarantee)

MOFRegulation223/2012(VGF)


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Distinguish between project finance and

PPP

Projectfinancemaybeutilisedbythepartyresponsiblefor

financingaproject

PPPisutilisedbyapublicsectorentitylookingtoshiftthe

responsibilityforfinancingaprojecttoaprivateparty(the

successfulbidder)

PPPandprojectfinancearecombinedwhenthesuccessfulbidder

inaPPPprojectusesprojectfinancetofinancetheproject

(alternatively,thesuccessfulbiddercouldfinancetheprojectusing

equity

or

through

a

conventional

construction

loan,

see

above) Projectfinancemethodscan(andfrequentlyare)usedwithoutPPP

(mostfrequentlyinconnectionwithnaturalresourceprojects


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General Project Finance

GCA SPCPPPagreement

Lenders

Contractor

O&M

Insurer

Supplier

Purchaser

InsurancePackage

ServicesAgreemen

t

EPCContract

Supplycontract

OfftakeContract

Sponsors

Shareholders

Agreementand

EquitysubscriptionAgreement

DirectAgreement

Debtfunding&

Security

Package


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Some Special Characteristics of a Project

Finance Loan Agreement

(Almost)alwayssecuredbyprojectassetsandothersecurity

(butbasis

for

financing

is

revenues

from

project,

not asset

value)

Proceedstobeusedfordefinedprojectcosts(predominantlyconstructioncosts)

o Certificationsregarding

expenditures

as

project

costs

requiredfordrawings(confirmedbytechnicaladvisor)

o Interestduringconstruction(IDC)

o Mayinclude

standby

facility

for

cost

overruns

o Voluntarypartialcancellationofcommitmentsmayrequiredemonstrationthattheborrowercanstillfinancetheprojectwiththereducedamount


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SomeSpecialCharacteristicsofaProjectFinance

Loan

Agreement

Closerelationshipbetweentermsofprojectagreementsand

loanterms

/security

package

Directagreements/collateralwarranties/othersecurity

Referencestoconstructioncontracts,contractorsand

constructionprogramme in

loan

terms

Repaymentprofile:

Usuallyamortizinginaccordancewithprojectrevenues

Notbullet

maturity

(although

this

may

appear

in

project

bondsandinrealestatefinancing)


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PPP-Project Finance in WTE Indonesia

HeadofRegion

SPCPPP

agreement

Lenders

Contractor

O&M

Insurer

PD.Kebersihan

PLN

Insurance

Package

ServicesAgreemen

t

EPC

Contract

Supplycontract

PPagreement

WinningBidder

Shareholders

Agreementand

Equitysubscriptio

nAgreement

DirectAgreement

Debtfunding&

Security

Package

MOFIIGF

RecourseAgreement Guarantee

Agreement

VGF


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General terms in PPP on connection

with financing WTE Indonesia

PR67/2005requiresprivateentitytoreachfinancialclose

within

1

(one)

year

since

PPP

agreement

is

signed

and

can

be

extendedbecauseofgovernmentdefault;

Financialclose:(i)loanagreementissignedtofinancethe

project;and(ii)partofloancanbedisbursedtostart

construction;

CommonlyinseveralWTEprojects,thePPPagreement

requiresratioofloanisnotmorethan80%oftotalproject

capital;and

Theprivateentityisprohibitedtomakesecurityover

state/regionassets.


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Government Support (VGF)

Currently,PPPprojectmaybegrantedfeasibilitysupportby

MOFin

the

form

of

half

of

construction

cost;

ThepurposeofVGFistomaketheprojectfinanciallyfeasible;

GeneralrequirementsforVGF:

a. TheWTE

PPP

project

shall

economically

feasible

to

obtain

VGF;

b. TheWTEPPPProjectshallhaveminimuminvestment

value

IDR.

100.000.000

(one

hundred

million);c. TheWTEPPPprojectisatenderedproject;

d. Etc.


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Simplified VGF Process

Headof

Region

Preparation Transaction Ground

Breaking

MOF SPC

VGFLetter

Application VGF

1. If theprojectisobtainVGFfromMOF,thentheVGFshallbestipulatedunder

tenderdocuments;

2. PleasenotethattheVGFonlycover,formaximum,apartofconstructioncost,not

totalinvestmentaPPPWTEproject.


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Government Guarantee

GovernmentguaranteeinPPPWTEprojectwillbegivenbasedonproposalfromGCAtoIIGF;

IIGFwillguaranteeobligationsofGCA,includinglicensing,permit,approval,changeinlaw,default,delayinfinancialclose,demandrisk,revenuerisk,etc.

Thecriteriatoobtaingovernmentguarantee;

a. TheWTE

PPP

project

shall

atype

of

project

regulated

under

PR

67/2005;

b. TheWTEPPPprojectshallcomplywithsectorlawsandregulationandtenderedincompetitiveway;

c. TheWTE

PPP

project

shall

technically,

financially,

economically,

andenvironmentallyfeasibleanddoesnothavenegativesocialimpact;

d. ThePPPagreementshallhasprovisionforbindingarbitration.


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Simplified Guarantee Process

HeadofRegion

Preparation Transaction FinancialClose

IIGF

SPC

Approval

Application

MOF

GuaranteeAgreement

Recourse

Agreement

CoGuaranteeAgreement

1. IftheprojectisobtainguaranteefromIIGF,thentheguaranteeshallbe

stipulatedundertenderdocuments;

2. Therecourseagreementandguaranteeagreementwillbesignedalong

withthe

PPP

Agreement


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Tipping Fee

InseveralPPPWTEprojectsinIndonesia,inordertomakethe

projectfinanciallyfeasible,theGCAwillpaytippingfeetothe

privateentity;

TippingFeeisthepricechargedtodelivermunicipalsolidwasteto

alandfilldumpsitefacility,WastetoEnergyfacilityandrecycling

facility

ThePPPTipping Fee isamountpaidbyGCAtoprivateentityas

compensationofwastemanagementcost,andconsideredasreturn

ofinvestmentofprivateentityforthebuildandoperatedfacility.

Thetipping

is

charged

by

the

amount

of

tonage

based

on

the

solid

wastedeliveredbytheSolidWasteDumpTruckenteringtheland

filldumpsitefacility,WastetoEnergyfacilityandrecyclingfacility


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Obligation to Purchase electricity

from waste management by PLN

InordertomakefinanciallyfeasibleofPPPproject,theother

sourceof

revenues

may

be

originated

from

sale

of

electricity

generatedfromsolidwastemanagement;

MEMRhasissuedMEMRRegulationNo.4of2012toassign

PLNto

purchase

electricity

from

renewable

energy; the

arrangementarenotifiedonPPA(PowerPurchase

Agreement)

PLNisobligedtopurchaseelectricityfromrenewableenergy

forthecapacityupto10MW.


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Bankability

Ifthefinancialelements(guarantee,VGF,tippingfee,PPA)asaboveisfulfilled,includingthesecurity,andtheriskallocationofrelatedagreement

is

well

managed,

then

the

project

is

ideally

Bankable.

Thedecisiona WtEcompanyhavetomakeisderivedfromhowmuchtheoutcomeofWtE worth. The valuationisthesinglefinancialanalyticalskillthat WtE stakeholdershavetomake.

TheValuation

analysis

involves

assessing

IdentificationofPotentialIncome(TippingFee,PowerPurchaseAgreement,OtherIncome)

ProjectedCashFlowlevels and

RisksinvaluingthoseCashFlows,whetheritbethecashflowfrom(1)assets,(2)debtor(3)equity

Measurementvalue

forecasting

and

risk

assessment

is

avery

complexanddifficultproblem. Including(expectedInterestrate,Inflationrate,CostofMoneyand/orValueForMoney


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Financial Modelling

ThescopeofFinancialModellingincludes:

ModellingVariables

and

Project

Returns

ProjectedProfitandLossStatement

ProjectedCashFlowStatement,ProjectedIRR(InternalRateofReturn)andProjectedNPV(NetPresentValue)

ProjectedBalanceSheetStatement

LoanSchedule

RevenueDetail

ExpenditureDetail

AssumptionofModelling

Performingsensitivityandscenarioanalysisonmodeloutputs


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Assumptions in Financial Model

TheassumptionofFinancialModelbasedon three

basicoperating

inputs:

Capitalexpenditures

Revenues

Operatingexpenses

Basedon thesethreeinputsworkontheIRRandNPVwiththeappropriateExpectedInterestRateandExpectedInflationRate

Forecasts forthevaluedrivers candiffersfromoneWtEFinancialModelandtheother


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Financial Analysis Issues

Foreachlineiteminthefinancialstatements,show

ratiosfor

the

items

and

show

assumptions

for

the

ratios

Thekeyistoidentify realeconomicdriverssuchas

price,capacity

utilization,

market

share

and

other

thingsthatreallydrivevalue

ArrangebyRevenues,Expenses,Capital

Expenditures,Working

Capital

and

Depreciation

Ifdeferredtaxesarepresent,calculate book

depreciationandtaxdepreciation


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Measurement of Risk in Financial

ModellingThefundamentalissueinanyvaluationofFinancialModelling ishowtoassesstheriskoffuturecashflowprojections.

Financialtheory

Financialtheory)shouldbeusedtocomputetheWACC (WeightedAverageCostofCapital),thatcan beusedtoestimateequityreturns,thatoptionspricingmodelsshouldbeusedforcreditspreads,debtcapacityandcovenants.

MathematicalModels

Mathematicalmodelsincludestatisticalmodelsforcreditanalysisandvalueatrisk.

PracticalMarketInformation

Practicalmarketinformationcanbeusedtogaugerequiredequity

returns,required

credit

spreads and

required

financial

ratios

DirectEvaluationwithFinancialModels

Useoffinancialmodelstodirectlyassessrisksthroughsensitivity,scenarioandsimulationanalysis.


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A good WTE financial model should:

Berelativelysimple

Focusonkeycashflowdrivers:WtERevenues (PPAandTipping

Fee),

Rates

(Interest

Rate

and

Inflation),

Expenses,

CapitalExpenditures,WorkingCapitalandDepreciation

Clearlyconveyassumptionsandconclusions

EvaluateRisks

through

sensitivity

analysis,

break

even

analysis,scenarioanalysis.

AgoodFinancialModel allowsdecisionmakerstofocuson

appropriaterisks

and

summarizes

data

in

an

efficient

way

thekeyvaluationissuesshouldbereadableandeasytounderstand,


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THANK YOU

WTE Project Finance Presentation

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